Every once in a while a stock comes along that is a real headscratcher on first inspection. Evans Systems(Nasdaq: EVSI), a small-time oil distributor and convenience store operator in Texas, fits that bill. The company has not posted a quarterly profit since mid-1995 and has shown two straight years of revenue contraction. Not exactly the type of story that would light a fire under a stock, right?

Wrong. Evans Systems, as of this writing, is the second-best-performing stock on any major exchange over the past 52 weeks. Forget Amazon.com(Nasdaq: AMZN) or Go2Net(Nasdaq: GNET) with their "tiny" 8-fold increases, Evans is up just shy of 20-times higher than where it was a year ago. Even more stunning is the fact that it is sitting at nearly 40-times its annual low.

What's behind this absolutely startling stock performance? As can only happen in these revolutionary times, Evans mixed together the two magic phrases of "new business model" and "Internet" to make its shareholders extremely happy. The company's Web marketing partner www.a-free-gift.com does not even have a working website up and running yet, but that hasn't stopped traders from bidding Evans up in hopes of more free gifts on Wall Street.

BUSINESS DESCRIPTION

Based in the south Texas town of Bay City, Evans Systems' primary business is distributing gasoline to a wide variety of retail convenience stores in southeastern Texas and southwestern Louisiana. Approximately two-thirds of the company's revenue came from petroleum sales in 1998.

Evans also operates about two dozen convenience stores and one full-service gas station in the same region. As part of a fairly large restructuring, the company has closed many of its underperforming outlets over the past several months.

The company also operates a small environmental cleanup business that specializes in recapturing petroleum from leaking underground gas tanks. Furthermore, the company recently sold its stake in ChemWay, a maker of various petroleum-based automotive products such as lubricants and degreasers. These two businesses combined contributed a mere $3.5 million (roughly 3%) to Evans' total sales in 1998.

In addition, Evans has penned an agreement with A-Free-Gift.com to be the exclusive distributor of the company's promotional packets to convenience stores throughout the country.

Evans was so small and obscure a year ago that it probably would not have shown up on most investors' radar screens. Nevertheless, those who bothered to look at Evans did have a few signs that perhaps a bounce was ahead. At its lowest point, Evans was trading at roughly a quarter of its book value, a strong indicator that just maybe there was value waiting to be found.

Obviously Evans has risen well beyond its book value and is much more than just a "realization of value" story. If there's one thing the company has proven it is that Wall Street cares much more about business models and innovative ideas today than it ever has in the past.

WHERE TO FROM HERE?

Exactly how the working parts of www.a-free-gift.com will function remains a mystery, but parts of the story have filtered out. Essentially, folks who walk into Evans' convenience stores will be given flyers with a coded number on them. People can then take these flyers home, swing by the free-gift website, enter the code they were given on the flyer, and receive some sort of free coupon for items at the store. The idea is that this will build traffic to the stores handing out the flyers, while the suppliers of the coupons get advertising impressions and demographic data when the gifts are redeemed at the site.

The kicker is that Evans has exclusive rights to distribute these particular flyers to convenience stores across the country. An unproven but interesting marketing idea combined with an exclusive contract is largely what's behind the stock's performance over the past few months, but investors should carefully scrutinize the actual potential of the idea.

As they say, nothing in this world is absolutely free. Evans promotes that it and other convenience store owners "could add an estimated $20,000 per year income to each store's revenues through the distribution fees associated with this program." However, it's not clear precisely where these fees will be generated. Will suppliers actually line up to produce the potential $1.7 billion in annual incentives that Evans and its partners envision could be paid to corner store owners around the country? What kind of value will be added to those footing the bill?

It's true that the Internet is revolutionizing the business world as we know it, and "reverse marketing" ideas like this may be the wave of the future. Just ask the folks at eBay(Nasdaq: EBAY) or Priceline.com(Nasdaq: PCLN) about the power of a simple but useful idea or model. Nevertheless, it is anything but certain whether meaningful revenue from the free gift concept is more than mere fantasy.

If the idea takes off, this may just be the beginning for Evans, and Evans will dethrone fish oil-turned-Web-purveyor Zapata(NYSE: ZAP) as the oddest little Internet stock from Texas. On the other hand, if www.a-free-gift.com doesn't live up to its lofty expectations, this is one Double that will resemble a popped bubble in short order.